Allegiant Adapts Business Model With Airbus A319 Additions

The parent company of Las Vegas-based low-cost carrier Allegiant Air, taking advantage of depressed values for used narrowbody aircraft, will add a third aircraft type to the airline’s fleet with the lease of 19 AirbusA319s.

Allegiant Travel says nine of the aircraft will be former EasyJet aircraft on 96-month operating leases from GE Capital Aviation Services. The remaining 10 will be on capital leases from Philippines-based Cebu Pacific for 60 months, after which Allegiant will own the aircraft.

Allegiant, which operates 58 MD-80s and four Boeing 757s, says it will base its future growth on Airbus narrowbodies. The A319s involved in this new deal will be just seven to 10 years old when they are delivered between 2013 and 2015, distinctly younger than the airline’s MD-80s, which are more than 20 years old.

All of the aircraft are higher-capacity A319s, with four exit doors and certified for up to 156 seats. With the acquisitions from Cebu, the vast majority of the global fleet of high-capacity A319s will be at London-based EasyJet. Allegiant President Andrew Levy says it is “extremely unlikely” the airline will ever lease to acquire lower-capacity A319s, which is why it foresees 178-seat A320 aircraft in its future.

“It’s extremely likely we will add the A320 because we like that size airplane for a substantial portion of our fleet,” Levy tells Aviation Week.

Were it not for the availability of the higher-capacity A319s, Allegiant would have opted for A320s for this first phase of deliveries, Levy adds. He also expects A320 prices and lease rates to continue to decline.

Allegiant says the value of the A320-family aircraft, and the A319 in particular, are declining because other carriers are replacing them and Boeing 737-700 aircraft with bigger jets or making deals for the re-engined, more fuel efficient Airbus NEO and Boeing MAX aircraft. Slowing global economic growth also has been a factor, the airline says.

Allegiant is not saying how much it is paying to lease the A319s. But Owen Geach, commercial director for the International Bureau of Aviation (IBA), recently said lease rates for some A319s have fallen to less than $150,000 per month, particularly for pre-2005 aircraft. IBA is a global, U.K.-based aviation consultancy and aircraft appraisal firm.

Allegiant says ownership costs for its A319s will be about double the amount for its MD-80s, doubling the ownership cost per passenger from $5 on the MD-80 to $10 on the A319. But it says the lower fuel and maintenance costs for the more efficient, reliable and modern aircraft and CFM engines meanthe total projected cost per passenger will be $10 lower than that of the MD-80s. Those estimates are based on a jet fuel cost of $3.25 per gallon, a continuation of the carrier’s 90% load factors and a utilization rate of 8.9 hours per day.

That value is so appealing that Allegiant is willing to divert from its business model, which relies on owning aircraft so the airline can park them during periods of weak demand without incurring leasing costs. With the A319s, however, owners of the aircraft are reluctant to sell them because the deteriorated values will require losses to be booked.

Allegiant says it considered acquiring aircraft, but “the incremental capital for new aircraft could not be justified” because the leasing opportunities provide higher returns. Also, it says its ongoing use of 56 MD-80s, all of which it now owns, will continue to provide capacity flexibility. Allegiant foresees a year-end 2015 fleet consisting of 56 MD-80s, 19 A319s and six Boeing 757s.

The range of these A319s, a 157% improvement on the MD-80s, and their ability to serve airports with short runways in hot-and-high conditions also will enable Allegiant to extend its network across the U.S., Mexico and Canada, Levy says.

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